Now it’s Crapo, who already noted he is a critic of the Fed. He says Fed balance sheet will reach 20 per cent of GDP and hasn’t contributed to growth. He asks whether the Fed’s stimulus has really done anything.

Shelby talks about China buying US bonds. Asks Yellen if it’s true that it’s actually the US that is buying its own paper.

Yellen says the Fed is not aiming to help the government out with its deficit. But notes once the interest rate hit zero, the Fed had to look at alternate measures.

3:41pm

Shelby asks what is the real unemployment reflected in people giving up looking for work. He cites 13 or 14 per cent.

Yellen acknowledges his point, saying there is a significant decline in labor force participation.

3:42pm

Shelby now switches to Basel III and capital standards, asks how important it is. That’s an easy one for Yellen. She notes it’s extremely important and adds that the most systematically important firms will be asked to hold even more capital.

Shelby goes back into history, asking what Yellen has learned from her time at the San Francisco Fed. Yellen says she has drawn the appropriate lessons, trying to identify the threats.

3:47pm

Sherrod Brown begins questioning. He was part of a letter writing campaign that gathered senator signatures to support Yellen when Lawrence Summers, the former Treasury secretary, was still a candidate.

Brown is a big critic of Wall Street. Says he is worried that Fed’s policy doesn’t benefit Main Street. Asks how Fed can benefit people in Cleveland (Brown is from Ohio).

Yellen says it’s true that in the beginning, the Fed policies affect housing and auto prices through interest rates. Says that does spread to other Americans but she hopes to generate more growth to affect all Americans.

3:49pm

Brown notes comments that Too Big to Fail still exists. He is the co-sponsor of a bill aimed at addressing that issue.

Yellen says she agrees addressing Too Big to Fail is among the most important goals, noting it’s damaging and creates moral hazards. She says we are making progress through the Dodd-Frank mandates.

Yellen brings up the long-term debt proposal as part of a bank’s resolution plans. It’s one of Fed Governor Daniel Tarullo’s pet project but details haven’t been released yet.

3:50pm

Committee member Chuck Schumer – a Democrat from New York – is enthusiastic about Yellen:

Vitter moves on to leverage ratios, saying what regulators have proposed isn’t enough. Yellen says there will be meaningful improvement in capital standards.

Yellen says a “belt and suspender” kind of approach is what they are trying. Better to not be caught with your pants down. She doesn’t commit to supplemental leverage ratios, says it’s better to wait until Dodd-Frank rules are written.

Vitter asks whether Yellen would support Rand Paul’s Fed transparency bill that would audit the Fed. Yellen says she supports transparency but not anything that would diminish the Fed’s independence.

Paul has threatened a hold on Yellen’s nomination unless he gets a vote on his bill.

4:00pm

Our colleagues at Fast FT have this markets update:

The S&P 500 is up 0.3 per cent at 1787, 5 points higher than the record it hit on Wednesday. The benchmark 10-year Treasury yield is at 2.71 per cent, down 2 basis points from when Ms Yellen entered the hearing.

Ms Yellen generally struck a dovish tone, speaking about the troubling effect of long-term unemployment after the first question from Tim Johnson, the Democratic chairman of the committee and reiterating her commitment to lowering unemployment further while keeping inflation under control.

Ms Yellen said that the Fed policy was “not on a set course” but did not offer any clues about whether the central bank might start slowing – or tapering – the pace of asset purchases. After a strong jobs report for October, some economists believe the Fed could make such a move as early as December, but most expect that moment will not come until early next year.

Senator Mark Kirk also brings up insurance regulations. He asks for a cost-benefit analysis on insurers having to change their accounting practices. Insurance firms have large lobbying operations in DC and in the states.

4:09pm

Virginia’s Mark Warner says he is also disappointed in FSOC. Interesting to see Democrats go after the council. The FSOC is in the process of reviewing asset managers and this criticism could affect that debate.

4:11pm

Senator Dean Heller asks Yellen a random question on gold prices and what drives the market.

Now, finally, officials are optimistic that the rule will be delivered by the end of the year. Banks are nervous about the outcome and furious at what they say is stonewalling by the regulators.

4:20pm

Yellen says the Fed is trying to be faithful to the intent of the Volcker rule. But the “devil is in the details” since the rule allows for market making and hedging, which banks complain are indistinguishable from prop trading.

Merkley also asks about banks owning physical commodities, an issue the Fed is studying. JPMorgan has already said it is selling that business.

Brown’s subcommittee is having a hearing on the issue on November 20. Yellen says the Fed is going through an extensive review and may be involved in additional rule making.

4:23pm

Here is Bob Corker. He asks how many rate increases Yellen has voted for.

Yellen says 20 or more. Corker says its about 27 or so. Corker asked if she has voted against any rate increases and Yellen answers no.

Corker says easy money is an elitist policy, with Wall Street institutions doing the best, but it hasn’t trickled down to the economy.

Yellen says low interest rates probably boosted the stock market but it’s also played an important role in helping the housing sector. So it’s been broadly beneficial.

Corker talked about market reaction to earlier worries about tapering, saying it seemed like the Fed had touched a hot stove. He said the Fed had become a prisoner to its own policy, which Yellen disputed.

Yellen says again we are not a prisoner of the markets, and that there have been improvements in the labour market. Corker comments that maybe the Fed is a little bit of a prisoner.

Corker asks if Fed would have the courage to prick those asset bubbles, possibly in housing, to prevent another crisis. Yellen says no one who lived through the crisis would want to go through another one.

4:28pm

Corker has some nice things to say at the end of his questioning. He says he appreciates Yellen’s candor and transparency.

4:30pm

Corker’s turn is up. Senator Kay Hagan talks about the swaps push out rule that was just passed in the House to exempt certain “plain vanilla” derivatives from Dodd-Frank mandates.

Yellen says the Fed is working hard to address the concerns around the swaps push out rule and that the final proposal should address those worries. Hagan has a companion bill in the Senate to the one passed in the House.

The Senate has been reluctant to go back to any Dodd-Frank rules until the proposal writing is done. The House hasn’t had those reservations.

4:33pm

Hagan asks about volatility in the markets. Yellen says the Fed is trying to clearly communicate but the stimulus program is unprecedented. She also said it’s a work in progress and sometimes there is miscommunication but the Fed does want to minimise unnecessary volatility.

She says it seems the Fed is also passing the buck and asks whether the Fed should meet often on regulatory issues as it does on monetary policy.

Yellen replies that the Fed does need to devote as much time on regulatory issues as it does on monetary policy. But says the Fed’s ability to get together outside open meetings is limited because of the sunshine policy.

The Fed’s Daniel Tarullo is the main official there who covers regulatory policy. There have been questions on whether he has a good relationship with Yellen, but she has been touting his policies today.

4:46pm

Warren asks a loaded question: Did the Fed’s lack of attention to supervisory matters lead to the crash of 2008?

Yellen says Fed has gone back and revamped its supervision processes. She says the Fed no longer delegates to individual reserve banks the supervision of one or two large banks.

Yellen says a top priority now is the monitoring of the financial system, which the Fed wasn’t doing adequately before the crisis so it missed issues with mortgages and other issues.

Senator Jack Reed of Rhode Island says Yellen already demonstrated her wisdom by going to Brown University in his home state.

Reed asks how it would affect Yellen’s job if the US fiscal policy was complementary to monetary policy. Yellen says the two policies are at odds and she recognizes the importance to reduce the US deficit.

Yellen says it would be helpful if deficit reduction addressed the US long term debt. Congress is currently going through budget negotiations and faces another possible shutdown deadline in January.

Yellen says a default would have been catastrophic and the Fed did see signs in the lead up to the debt limit deadline that market participants were taking preemptive action to protect themselves. She says there was also a negative impact on consumers.

Yellen says in real estate, the Fed is seeing private investors coming in. Las Vegas and other areas that had the biggest crashes are seeing the sharpest rise in housing prices.

She says they are watching it very carefully but she doesn’t see it as a bubble. Instead, it’s a logical market reaction.

5:00pm

Johanns says if tapering happened in the next 24 months, housing prices would go down and the market would be affected.

He worries that economy is used to the sugar high, which is very dangerous to the little person. Johanns also says he suspects Yellen agrees but won’t say so publicly.

Funny that Republicans who want to see tapering keep commenting on how the market would be negatively affected by tapering.

5:04pm

Senator Heidi Heitkamp is up now. She is the most junior Democratic senator on the committee so her turn comes after most Democrats have gone through their first chance at questions.

Heitkamp asks what Yellen has done to address income disparity. Yellen says that is a very deep problem and economists have spent a lot of time trying to understand it. But she notes many of the factors are outside the Fed’s influence.

5:05pm

How to quantify quantitative easing? McKinsey’s got a report out on the winners and losers:

Senator Joe Manchin says he looks at Yellen and remembers a time when the US had a balanced budget.

Manchin, a Democrat, says if the Fed’s $85bn-a-month bond-buying programme isn’t achieving its goals, why doesn’t the Fed push it to $200bn?

He asks if the budget could be balanced again the way it was in the 1990s. Yellen notes the role of Congress and President Bill Clinton in achieving that goal. In other words, it’s really up to others.

He asks Yellen to speak out more about a balanced budget. Also says the US will go into a “sugar shock” soon.

Manchin tells her to “be bold.”

5:16pm

Senator Chuck Schumer says the greatest problem is that middle-class incomes are declining, not just during the crisis but also in 2001-2007. He says Senator Elizabeth Warren alerted him to that issue when she was a Harvard professor back in the day.

Schumer asks Yellen how concerned she is about this since no one gives it the attention it needs. Yellen agrees it’s very serious, and says it goes back to the 1980s.

She says the Fed can’t change all those trends. But what it can do is to try to achieve a robust recovery to create jobs.

Schumer asks if the Fed didn’t do QE, wouldn’t interest rates would be artificially high? He is trying to combat Republican criticisms of a sugar high.

So Yellen handled herself well. She managed to not give any specific answers and the Republicans didn’t pursue a scorched earth policy.

5:18pm

Now the question is how fast will her nomination go through the Senate. She will likely get through the committee fairly quickly, but a few senators have threatened holds in the full Senate.

5:26pm

We’re wrapping up as well – thank you for reading. Some final thoughts from James Politi:

The hearing lasted little more than two hours, and Yellen was comfortable and confident throughout. It leaves little doubt that she will be confirmed to take over the top job at the Fed succeeding Ben Bernanke early next year.

She mounted a strident defence of quantitative easing, insisting the benefits outweighed the risks, and insisting it was still needed given that the labour market had not fully healed yet.

But she also fended off the harsher questions from Republicans by assuring them that the Fed was carefully watching any signs of rising inflation or asset bubbles and policy was not on a “set course”. She did not give any clear clues on Fed tapering but on balance it still looks like early next year is more likely than December.